Sunday, December 2, 2007

Online advertiser Adteractive Inc. will pay US$650,000 to settle charges that it used deceptive spam messages to lure people to its Web sites.

The company ran e-mail and Web ads offering free Sony Playstations, laptop computers, and even a $1,000 check, implying that consumers had been selected as secret shoppers and would receive the free gear or cash after they tested the products, the FTC said in court filings.

The U.S. Federal Trade Commission has been investigating this behavior, called "promotion-based lead generation," in the advertising industry for several years now. It is also taking a look at online advertiser ValueClick. It announced the settlement with Adteractive on Wednesday.

But actually collecting the freebies proved to be complicated. "After the consumer navigates [Adteractive's] 'optional' promotions-- often taking up five or six consecutive computer screens, each with multiple offers-- he or she eventually reaches a link that, when clicked, takes the consumer to the first of three tiers of offers in which the consumer must participate to obtain the free merchandise," the FTC said.

In order to get the really good prizes, consumers would have to do things like take out a one-year subscription to satellite TVs, or sign up for CD or DVD deliveries. "In most instances, it is impossible for the consumer to qualify for... free merchandise without spending money," the FTC said.

Founded in 2000, Adteractive was earning $118 million in revenue in 2005, and boasted clients such as Blockbuster, Netflix, Club Med, BMG and Citibank, according to an article in the San Francisco Business Times.

The company has been cooperating with the FTC since 2006 and is happy with the settlement, which spells out how the company can run these promotions in the future, said Greg Wharton, Adteractive's general counsel.

Online advertisers now have better guidelines on how to present their promotions to consumers, Wharton said. "The FTC has offered some guidance on how to use the word 'free' in advertising," he said. "At the end of the day, we're actually pleased to get this resolved."

Adteractive expects that the FTC will soon announce several other enforcement actions, Wharton added.

Not everyone was happy with Wednesday's news. If the FTC really expects to deter this kind of behavior, it's going to have to levy higher fines, according to Ben Edelman, an assistant professor at Harvard Business School.

"Time and again, the FTC accept settlements that let defendants retain a portion of their ill-gotten gains," he said in an e-mail interview. "Tougher requirements are needed in order to make sure defendants actually regret their infractions, and to prevent others from turning to these ill-advised strategies."